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dc.titleTargeting Credit through Community Members
dc.contributor.authorVera-Cossio, Diego A.
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageThailand
dc.date.available2018-08-14T00:00:00
dc.date.issue2018-08-14T00:00:00
dc.description.abstractDecentralizing the allocation of resources to community members is an increasingly popular form of delivering public resources in developing countries. However, this approach is associated with the tradeoff between improved information about potential beneficiaries and favoritism towards local elites, which could be strengthened in the context of credit. Unlike targeting cash transfers at poor households, allocating publicly-provided credit is a more complex problem involving issues of risk, neediness, productivity, and market responses: This paper analyzes this problem using a large-scale lending program, the Thai Million Baht Credit Fund, which decentralizes the allocation of loans to an elected group of community members, and provides three main results. First, exploiting a long and detailed panel, I recover pre-program structural estimates of household productivity and find that neither repayment, nor poverty, nor productivity explains program participation. Second, using socioeconomic networks data, I show that actual targeting is strongly driven by connections to village elites and is related to lower program profitability, which suggests favoritism as a reason for mistargeting. Finally, I exploit quasi-experimental variation in the rollout of the program and uncover evidence that, in general equilibrium, informal credit markets partially compensate for targeting distortions by redirecting credit towards unconnected households, albeit at higher interest rates than those provided by the program. The results highlight the limitations of community-driven approaches to program delivery and the role of markets in attenuating potential targeting errors.
dc.format.extent91
dc.identifier.doihttp://dx.doi.org/10.18235/0001268
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Targeting-Credit-through-Community-Members.pdf
dc.language.isoen
dc.mediumAdobe PDF
dc.publisherInter-American Development Bank
dc.subjectProductivity
dc.subjectEntrepreneurship
dc.subjectCredit Market
dc.subjectMicrofinance
dc.subjectInformal Credit
dc.subjectBank Loan
dc.subjectInterest Rate
dc.subject.jelcodeG21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages
dc.subject.jelcodeL14 - Transactional Relationships • Contracts and Reputation • Networks
dc.subject.jelcodeO12 - Microeconomic Analyses of Economic Development
dc.subject.jelcodeO16 - Financial Markets • Saving and Capital Investment • Corporate Finance and Governance
dc.subject.jelcodeO17 - Formal and Informal Sectors • Shadow Economy • Institutional Arrangements
dc.subject.jelcodeZ13 - Economic Sociology • Economic Anthropology • Social and Economic Stratification
dc.subject.keywordsdecentralization;microcredit;targeting
dc.typeDiscussion Papers
idb.identifier.pubnumberDiscussion Papers
idb.operationBK-C1102
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